Your Questions About Mortgage Refinancing Rates

Robert asks…

How do I get lower interest rates with mortgage refinancing?

John answers:

Very simple. You find a mortgage company that is willing to offer a lower rate than you are paying on your current mortgage. Whether that is possible depends on your current rate as compared to the market rate that exists now. Of course you have to look at other terms of the mortgages offered to you. For example, you may not want a 3% ARM with a maximum rate of 12% to refinance a 6% fixed rate mortgage.

Paul asks…

Mortgage Rates – ReFinancing?

I come to you in search of an answer as my banker seems is being very vague and untimely in getting me answer to my questions. My wife and I recently locked in our 30 year mortgage rate of 6.025%. With the rates dropping lower and lower we asked our banker if we could refinance at a lower rate (near 5%). She basically told us it would cost us more in the long run. I can’t figure out how she came to that. Assuming that rate deduction knocks off, say $120, a month (normally we pay about $1,625/mth); how would we end up paying more over 30 years? This is assuming we’ll still be paying about $1,600/mth that we budget for? Let me know guys…my bank recently pulled their ‘mortgage rate tracker’ from their site; which is adding to an already huge complaint list about my lender.
Clarification/Update:
-We built a new house and were under the ‘construction window’ until this past June when we locked into our 6.025% rate.
-We’ve been living their for less than 2 years.
-The banker spoke to my wife today (I’ll add as much as she remembers:
-We are in a new credit ‘bracket’ with the bank…something they just started to do, apparently in the past couple months. She said the bank added these brackets after some mortgagees(sp?) could not complete payments…they’re stricter on their loans (we’ve been making payments on-time, plus extra to the principle).
-She said the banker told her we have a different loan to house value (?) than we did when we transfered over from construction.
-Right now (banker said) they’re only going as low as 6.3%, but she estimates with Obama’s new plan, if invoked, would drop the rate in our ‘bracket’ enormously.
-We plan on retiring and living in the house the rest of our lives(60+ years)
-Any suggestions on where to go?

John answers:

Not true. I don’t have all the details, however I imagine the bank may be trying to keep you at a higher rate, or the loan officer at the bank is being lazy. It all depends on if you will stay in the home long enough to recoup closing costs and if you wouldn’t lose enough equity to have to start paying PMI (assuming you have more than 20%-25% equity right now). If you plan to stick around for 2-3 years, then you are pretty much guaranteeing it’s a good move to refinance.

This is assuming that you have already closed. If so, skip the next paragraph. By your wording, it’s hard to tell since you said you recently locked. However, I’m suspecting you meant you recently closed?

If you have already closed on your home, then go to the next paragraph. If not and the closing date is in the future then you can ask the bank to “float-down” the rate (which is being allowed more often now) since they dropped so much. If not, you can bail and find a mortgage broker who will take you, however your bank can go after you to recoup losses because when you lock that ties down money (it’s a commitment) and the longer you have locked for, the more that costs. It’s best to work with the bank in that circumstance, though I would still call a mortgage broker and get their advice on whether you should bail.

If you already closed on your home then go ahead and find a mortgage broker to refinance with if you are planning to stay at your home long enough to recoup the closing costs (at least a year and possibly more depending on how much of a drop you get). Don’t go to your bank. Many banks outsource the processing, etc, anyway and offer equally good packages to mortgage brokers. Refinancing with less than 6 months to a year could ding your credit score for a little while, but it’s still probably worth it, especially if you don’t expect to take any other big loans in the very near future. The other thing I’d look at is if you have enough equity to drop PMI and if you need to wrap closing costs into the refinance (if you have nothing to put down), then you need to make sure you aren’t going to lose enough equity that you have to start paying PMI. However, it’s still probably worth it even in that case if you are going to stay there long enough because you will eventually be back to enough equity to lose the PMI. I recommend running scenarios with a spreadsheet program and seeing how long it will take to recoup the closing costs.

I’m looking to refinance right now from 6.25% and already got offered a 5%, though I turned it down since I’m looking for 4.75% (I’m now rethinking whether I should have done that since they have gone up a little since). I can recoup the costs in 2-3 years and I plan to live here for 5-8 years, so it’s good. If you recently closed (last 6 months) then it could potentially hurt your credit score though

One thing to keep in mind is that even though rates are really low, only a small percentage of people are able to refinance because many people lost equity when their house values went down and in some extremes their house is worth less than their mortgage. It’s hard to get a mortgage in that situation. If you bought your house recently, then you probably lucked out. I was lucky that I bought a home in an area that has held steady.

Hope that helps
–B

Mary asks…

Refinancing and Mortgage Rates?

Are refinancing and mortgage rates different? Also, is refinancing closing cost higher than mortgage closing when buying new home. I bought a home 10yrs-Fixed-ARM in June’07 at 6.25 and now the rates are 5.75. I will save $200 per-month if I get 5.75. Should I refinance? Advise please. I have good credit.

John answers:

Mortgage products are priced (assigned an interest rate) by the product type tied usually to federal reserve rates (the index) plus however much more the lender wants to charge you (the margin). The index changes daily usually until your rate is locked. Your existing rate is probably tied to the 10 year treasury bill (T-Bill) index, and then further priced by how long the amortization (how long to pay it off) is (10, 15, 20 30 etc years). The longer the payout, usually the higher the rate. The cheapest rates are fixed for the shortest amount of time and then variable, while having short amortization. The “margin” added to the index is based on your credit score and how much of the property’s value is being mortgaged – that is, the riskier the loan, the higher the interest rate. So if you have not great credit and you seek to finance 90% or more of the value of the house, you are going to have a high margin added to the index applicable to your loan type. Conversely, with good credit and borrowing 80% or less of the house value, the margin and thus interest rate will be lower.
So, refinancing an existing mortgage theoretically would have similar pricing, except that circumstances have changed – if the property appreciated as you paid down the mortgage,and your credit is good, your loan will be priced based on there being more equity in the house and thus a more secure loan. The closing costs will be lower since a purchase involves many more fees. Some lenders have “no fee” refinancing, but usually have a condition that the fees will be paid by you if you pay off and discharge the mortgage in less than a certain amount of time, like 3 years for example. This would happen if you sell the house in that time or refiance with another lender. And the no-fee aspect is all part of pricing the loan – you could probably get a little better of a rate if it is not a no-fee loan – although it is a good way to go if you need all the money from the refinance.
Talk to your existing lender about refinancing – they want to keep you and are in the best position to give you a good deal, since it is much easier to simply adjust your rate and term, than to start over with a new lender who has to run an appraisal and pay mortgage recording fees and taxes – which will be priced into the loan.
Then go to other lenders who advertise the rates you like – and let them prove to you why you should refinance in dollars and cents. But beware of adjustable rates that adjust within less than 5 or 7 years. Of course, 30 year fixed would be great, but the rates are higher, and in reality, the average life of a mortgage is about 7 years based on sales and refinancing.
Based on your own analysis, $200 is a big monthly savings, although half a point (.5%) is not that much – it is significant with a $500k mortgage. Sounds like a refi may work for you, but let the lenders show this to you – that is what they do. Good luck.

Linda asks…

Looking to find lowest refinance home mortgage rates?

I’m looking for a better home loan mortgage rate than I currently have with my bank. So I am seriously considering refinancing. Does anyone know where I can currently check for the lowest refinance home mortgage rates?

John answers:

You can actually get a better mortgage rate – without refinancing. There is a website which allows you to check for free if there is a better rate available with your current lender.

You can avoid the costs and all the paperwork and hassle associated with refinancing. Your bank won’t tell you that there is a better rate available with them, but there usually is.

Check for a lower rate here free:

http://www.checkmyrate.com.au

James asks…

Are the interest rates the same between people who take a new mortgage and those who refinance?

I want to take advantage of the decline in intest rates by refinancing my mortgage. When I search online I find a lot of rates quoted for new loans but not much for refinancing. Is it safe to assume the refinancing rates will be similar to the new buyer’s rates (with the same terms and credit rating of course)? Thanks.

John answers:

I would go to a reputable, bricks and mortar (physical location) of a known bank to refi. Part of the mortgage debacle was using anyone and everyone (including the big banks, though) and it is critical to be sure you know who you are dealing with and what you are dealing with! Get a referral and go with someone with a good track record. Also, start with the bank you deal with. They want to keep your business and may not charge closing costs like another lender would. The credit score will determine the “good rate” that sounds low but still depends on credit score.

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